Advanced financial
management
Dr.Mohamed Seif ElGhamry
The course will cover the following main topics :
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Cost of capital
Leverage and capital structure
Dividends and dividend policy
Raising capital
Short
–term financial planning
.
Working capital management
What is a bond & stock and the difference between
them?
A bond:
Is a type of debt security under which the issuer owns the holders a
debt that is obliged to repay its principal amount at maturity as well as
pay interest on agreed upon periods..
What does this mean ??
- The bond is granted to be paid for the holder whatever company Situation is .
- Usually the bonds duration are long term durations sometimes reach 30 years
to pay principal back
- Bond issuer should be a reputable entity with a good history in the market
- Accordingly bonds are credit rated securities by which interest rates are set
(rates vary from triple A to C +) credit rating companies like Moody’s and
Standard & poor’s are offering this service to investors .
- Bonds are high cost financing alternative ( financing debt ) compared to other
alternatives
Is there a difference between bonds or they all are the
same ?
Of course there are different types of Bonds for different uses and
durations for example :-
Government bonds :These bonds that are issued by the government itself to finance budget deficit
(U.S treasury bonds are the most famous example of it ) .
 Zero coupon Bonds :These kind pays no coupon payments and are totally paid with interest at maturity ,
usually priced at deep discount .
Floating rate bonds :Enjoys interest fluctuating payments and priced against treasury bonds with
remarkable premium (usually enjoys longer terms than other bonds ).
Income bonds :This kind shares profit from the company beside set interest rate .
 Convertible bonds :Some kind of agreement that gives the holder the right to convert them to shares in
the company .
What happens to the bonds when
interest rate change in the market ?
Stocks :
What does this mean?
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The stock is the shareholders right in the company by which they bear the company
risk .
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Unlike bond , stocks have no duration till the shareholder himself sell his shares or the
company liquidate .
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Stocks usually issued with new companies or for raising capital and so its suitable for all
kinds of companies even starting up companies .
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Stock Shares considered to be low cost in financing ( financing equity ) compared with
other alternatives .
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Do you think which of them ( bonds or stocks ) are of bigger volumes in market trade ?
And why ?
Are there different types of stocks ?
Sometimes common stacks are ranked to A&B&C categories .
Bonds
Stocks
• Bonds issued for financing debt
• Stocks issued for financing equity
• Bonds pay coupons on set dates
• Stocks pay dividends upon
agreements and availability.
• Bonds traded in market with
maturity dates
• Bond dealers are risk averse
persons.
• Stocks traded in markets with no
maturity dates
• Stock dealers are risk taker
persons.
What do you think is better
financing by dept or by equity ?
Real interest rates & nominal interest rates
Nominal interest rates are the one that has not been adjusted for
inflation
Real interest rates are the one that has been adjusted for inflation .
What do you think is the most important to
a typical investor
nominal or real interest rates ?
Thanks!